(Bloomberg) --New York's insurance regulator issued a damning report laying out the severe financial condition of the city's largest insurer of taxis and for-hire vehicles, as well as dozens of potential financial improprieties and accounting problems, warning that the consequences of failure could be devastating for tens of thousands of drivers.
The report, showing years' worth of previously unpublished correspondence and comprehensive state-mandated examinations of American Transit Insurance Co., shows state regulators under both current Governor Kathy Hochul and her predecessor Andrew Cuomo have been aware for at least half a decade about the dire financial circumstances, yet until now failed to take serious action that would force the company to address its problems.
The company known as ATIC has had reserves that are "massively deficient," according to a letter from New York's Department of Financial Services dated April 3 that was posted to the DFS website. ATIC must take "immediate action" to cure its insolvency and should "explore all possible options to obtain funding," according to the letter. This includes a potential sale to a counterparty able to infuse capital, the regulator said.
"If this situation is not resolved, ATIC is at significant risk of failure," the letter warned. "This would be economically devastating for livery drivers, passengers, health care providers and the New York economy, and would disrupt vital transportation services," DFS said.
ATIC said in a statement Thursday that the company is working to address a "longstanding issue of statutory solvency amid rampant fraud and escalating costs." The company said it is seeking a solution, which will "not unduly impact the broader market in an adverse manner."
Run by Ralph Bisceglia, ATIC has become a key player in the New York transit ecosystem, building a market share of about 60% of the city's taxis and rideshare vehicles by offering relatively cheaper plans than competitors. Bloomberg
"A collapse of ATIC would leave tens of thousands of livery drivers uninsured and without a source of income," according to the letter.
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Regulators also scrutinized the company's management, oversight and spending. They recommended that ATIC recover payments made to affiliates and bonuses paid to company officers totaling $22 million, according to a separate letter from the DFS dated May 17.
ATIC, which has insured drivers and owners of cabs in the New York-area for more than 50 years, has long disagreed with third-party actuaries over the amount it sets aside for claims. The state first identified its reserves as inadequate in 1979, though the magnitude of its insolvency has expanded in recent years, driven in part by the increasing costs of settling claims.
Despite shortfalls and misgivings, the state continued to let the company continue operating, even after a 2018 review identified issues with how the company was run.
"ATIC did not have a written strategic plan, business plan, or capital management process, failed to maintain documentation in support of its enterprise risk management function, and did not have a written risk policy adopted by its board of director," according to the review, a summary of the examination by DFS and the National Association of Insurance Commissioners in the five-year period from the beginning of 2014 to the end of 2018.
In recent years, the company's problems have increased as it deals with larger claim sizes driven by bigger settlements, along with jury and arbitration awards. The company is being sued in federal court by Uber Technologies Inc. for a "consistent pattern of failing to honor coverage for ride-share drivers in New York City who get into accidents."
ATIC attorneys have denied the allegations, and the suit is ongoing, but DFS has zeroed in on the risk of inadequate reserves.
"Absent a substantial capital infusion, the company can only use current premiums to pay those past claims," according to the April letter addressed to ATIC's chief compliance and risk officer Cisca Hung. "This dangerous practice leaves no assets to pay for the claims incurred by current policyholders."
